2020 (11) TMI 1002 - Tri - Companies Law

Tribunal Approves Merger Scheme for Three Companies: Shareholders and Creditors Benefit

The Tribunal approved the Scheme of Arrangement under the Companies Act, 2013 for the merger of three companies. The Scheme involved merging the ... Scheme of Arrangement under Sections 230 to 232 of the Companies Act, 2013 - dispensing with meetings of shareholders and creditors - wholly owned subsidiary exception to convening meetings - service of notices on regulatory authorities and Official LiquidatorDispensing with meetings of shareholders and creditors - Scheme of Arrangement under Sections 230 to 232 of the Companies Act, 2013 - Meetings of the Equity Shareholders and Unsecured Creditors of the First and Second Applicant Companies dispensed with. - HELD THAT: - The Tribunal recorded that all equity shareholders of the First and Second Applicant Companies filed consent affidavits and requisite majorities of unsecured creditors filed consent affidavits. In view of those consents, the statutory meetings of the Equity Shareholders of both Transferor Companies and of their Unsecured Creditors were dispensed with and therefore convening such meetings was not required for the purpose of the Scheme under Sections 230-232. The decision is premised on the filed affidavits of consent annexed to the Company Scheme Application and the consequent absence of a need to hold the meetings contemplated by the Companies (Compromises, Arrangements and Amalgamations) Rules. [Paras 8, 9, 12, 13, 14]Meetings of the Equity Shareholders and Unsecured Creditors of the First and Second Applicant Companies are dispensed with.Wholly owned subsidiary exception to convening meetings - dispensing with meetings of shareholders and creditors - Meetings of the Equity Shareholders and Creditors of the Transferee Company dispensed with. - HELD THAT: - The Tribunal accepted the Applicants' submission that both Transferor Companies are wholly owned subsidiaries of the Transferee Company and that the Scheme does not envisage issuance of shares by the Transferee Company or affect its creditors' claims. Relying on precedents cited by the Applicants and on the factual position that the Scheme will not alter the Transferee Company's shareholding pattern or debt position, the Bench held that meetings of the Transferee Company's shareholders and creditors could be dispensed with. [Paras 15, 16]Meetings of the Equity Shareholders and Creditors of the Transferee Company are dispensed with.Service of notices on regulatory authorities and Official Liquidator - Scheme of Arrangement under Sections 230 to 232 of the Companies Act, 2013 - Directives issued for service of notice of the petition and enclosures on specified regulatory authorities and the Official Liquidator, and for filing affidavits of service. - HELD THAT: - The Tribunal directed the Applicants to serve the application and its enclosures on the specified Income Tax authorities (in respect of each Applicant), the Central Government through the Regional Director (Western Region), the Registrar of Companies, SEBI, the stock exchanges named, and the Official Liquidator pursuant to section 230(5) and Rule 8. The authorities were given thirty days to file representations, failing which absence of objection would be presumed. The Applicants were ordered to file affidavits proving service and to report compliance to the Tribunal. [Paras 17, 18, 19]Applicants to serve notices on the listed authorities and Official Liquidator, allow thirty days for representations, and file affidavits of service reporting compliance to the Tribunal.Final Conclusion: The Tribunal dispensed with statutory meetings of the shareholders and relevant creditors of the two Transferor Companies and of the Transferee Company on the stated factual and consent basis, and directed service of notices on the prescribed regulatory authorities and the Official Liquidator with filing of affidavits of service. Issues:1. Scheme of Arrangement under Companies Act, 2013 for merger of companies.2. Business activities and rationale for the scheme.3. Shareholding and approvals of the Applicant Companies.4. Consent of Equity Shareholders and Unsecured Creditors.5. Dispensation of meetings for Equity Shareholders and Creditors.6. Compliance with legal provisions and regulatory authorities.Analysis:1. Scheme of Arrangement under Companies Act, 2013 for merger of companies:The judgment discusses a Scheme of Arrangement under Sections 230 to 232 of the Companies Act, 2013, involving the merger of three companies: Primesec Investments Limited, Prime Commodities Broking (India) Limited, and Prime Securities Limited. The Scheme aims at merging the Transferor Companies with the Transferee Company and their respective Shareholders.2. Business activities and rationale for the scheme:The Applicant Companies are engaged in various business activities, including restructuring advisory services, financial intermediation, and merchant banking. The rationale for the Scheme includes benefits such as reduction in management overlaps, regulatory compliances, and administrative costs, along with synergy benefits and consolidation of the Group structure.3. Shareholding and approvals of the Applicant Companies:The First and Second Applicant Companies are wholly owned subsidiaries of the Third Applicant Company. The Board of Directors approved the Scheme for merger and reduction of share capital. All Equity Shareholders and Unsecured Creditors provided their consent for the Scheme, eliminating the need for meetings.4. Consent of Equity Shareholders and Unsecured Creditors:All Equity Shareholders and Unsecured Creditors of the Applicant Companies submitted consent affidavits, leading to the dispensation of meetings for Equity Shareholders and Creditors. The Scheme aims to benefit the shareholders, creditors, lenders, and various stakeholders without prejudicing their interests.5. Dispensation of meetings for Equity Shareholders and Creditors:Due to the unanimous consent of Equity Shareholders and Unsecured Creditors, the meetings for both groups were dispensed with. The Scheme ensures no dilution in shareholding, protects the rights of creditors, and does not compromise the interests of the Transferee Company's stakeholders.6. Compliance with legal provisions and regulatory authorities:The Applicant Companies are directed to serve notices to relevant authorities, including Income Tax Authorities, Central Government offices, Regulatory Authorities, and Stock Exchanges. Compliance with Companies Act, 2013 rules, and serving notices to Official Liquidator is also emphasized to ensure legal procedures are followed diligently.This detailed analysis of the judgment highlights the key issues addressed by the Tribunal regarding the Scheme of Arrangement and the necessary approvals and consents obtained for the merger of the companies involved.